Retirement Plans

6 Months Ended

Jun. 30, 2020

Retirement Plans [Abstract]

Retirement Plans

(17) Retirement Plans:

The following tables provide the components of total pension and postretirement benefit cost:

	Pension Benefits
	For the three months ended				For the six months ended
	June 30,				June 30,
($ in millions)	2020		2019		2020		2019
Components of total pension benefit cost
Service cost	$	24	$	21	$	49	$	42
Interest cost on projected benefit obligation		28		32		58		65
Expected return on plan assets		(39)		(43)		(89)		(86)
Amortization of unrecognized loss		30		14		47		28
Net periodic pension benefit cost		43		24		65		49
Pension settlement costs		56		-		159		-
One-time gain on disposal, net		(50)		-		(50)		-
Total pension benefit cost	$	49	$	24	$	174	$	49
	Postretirement Benefits
	For the three months ended				For the six months ended
	June 30,				June 30,
($ in millions)	2020		2019		2020		2019
Components of net periodic postretirement benefit cost
Service cost	$	5	$	5	$	10	$	10
Interest cost on projected benefit obligation		8		11		16		21
Amortization of prior service cost (credit)		(8)		(3)		(16)		(4)
Amortization of unrecognized (gain) loss		1		-		3		(2)
Net periodic postretirement benefit cost		6		13		13		25
One-time gain on disposal, net		(24)		-		(24)		-
Total periodic postretirement benefit cost	$	(18)	$	13	$	(11)	$	25

The components of net periodic benefit cost other than the service cost component are included in “Investment and other income” in the consolidated statement of operations.

Our net pension plan liability is comprised of the Projected Benefit Obligation (PBO) offset by pension plan assets. The value of our pension plan assets decreased $520 million from the $2,730 million at December 31, 2019 to $2,210 million at June 30, 2020. This decrease primarily resulted from benefit payments to participants of $500 million and distributions associated with the sale of the Northwest Operations of $58 million, partially offset by increases for contributions of $37 million. Despite $558 million in distributions, the PBO component increased $2 million from $3,726 million at December 31, 2019 to $3,728 at June 30, 2020. This resulted primarily because of a decrease in the discount rate assumption from 3.4% at December 31, 2019 to 2.8% at June 30, 2020, as well as decreases to the interest rates used for lump sum payments.

The pension plan contains provisions that provide certain employees with the option of receiving a lump sum payment upon retirement. Frontier’s accounting policy is to record these payments as a settlement only if, in the aggregate, they exceed the sum of the annual service and interest costs for the Pension Plan’s net periodic pension benefit cost. During the six months ended June 30, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $464 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recognized non-cash settlement charges totaling $159 million during the six months ended June 30, 2020. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. These non-cash charges increased our recorded net loss and accumulated deficit, with a corresponding offset to accumulated other comprehensive loss in stockholders’

equity. As a result of the recognition of the settlement charges in the first six months of 2020, as required under US GAAP, the net pension plan liability was remeasured and recorded as of June 30, 2020 to be $1,518 million, as compared to the $996 million measured and recorded at December 31, 2019, or an increase of $522 million. This increase in the net pension liability during the six months ended June 30, 2020 is comprised of a $395 million increase related to the three months ended March 31, 2020 (an immaterial out of period adjustment recorded in the current quarter ended June 30, 2020) and a $127 million increase related to the three months ended June 30, 2020, with a corresponding increase to accumulated other comprehensive income, net of tax.

During the first six months of both 2020 and 2019, we capitalized $13 million of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities.

Required pension plan contributions for the fiscal year 2020 are estimated to be $193 million, of which $37 million was contributed to the Plan during the first six months of 2020. Certain provisions of the CARES Act permit employers to postpone making pension contributions due in 2020 until January 1, 2021. Frontier intends to postpone the remaining 2020 contributions of approximately $156 million, in the aggregate, until on or prior to January 1, 2021 as permitted by the CARES Act.

Frontier notified employees that it intends to file an application with the Internal Revenue Service for a waiver of the minimum funding standard under Section 412(c) of the Internal Revenue Code and Section 302(c) of the Employee Retirement Income Security Act of 1974 for the Plan for the Plan year beginning January 1, 2020. Frontier’s minimum funding obligation for the 2020 plan year has been determined by its actuaries to be approximately $196 million. If the waiver is granted, Frontier would spread the 2020 contribution, plus additional interest, over the five subsequent plan years, in addition to the minimum contributions owed for those plan years.